Wills Laws Overhauled
Changes May Affect You
This past March, British Columbia implemented major changes to its wills and estates laws. The new Wills Estates and Succession Act (“WESA”) consolidates four older acts, and modernizes the law regarding Wills and the administration of estates for BC residents. These changes may seem, on first blush, to be of little interest. But they are substantial, and we are sending this newsletter to our clients to let you know that we are concerned that some of you may need to update your Wills……
Read more by clicking here to download the PDF Newsletter
THINGS YOU SHOULD KNOW ABOUT PURCHASING YOUR FIRST HOME
Bob & Mary Buy Their First House
Bob and Mary had been married six years when Bob’s 35th birthday proved to be a milestone in their life together. Their daughter was two years old and both were progressing as software engineers. (They’d met at a conference in Hong Kong where Bob had been working.) Now they were about to buy their ﬁrst house. Some anxiety about the home purchase did arise, but Beacon Law Centre’s Kelvin Scheuer helped to deal with that.
–>> Read more by clicking here to download the PDF Newsletter
NEW TRUSTS CREATE NEW ESTATE PLANNING OPPORTUNITIES
If you are over 65, proposed amendments to the Income Tax Act permit you to use two new types of inter vivos trusts to achieve your estate planning goals. (An inter vivos trust is a trust created during your lifetime, as opposed to a testamentary trust, which takes effect upon death.)
A trust is a legal relationship and, for tax purposes, is a separate legal entity. When you transfer property to a trust, you no longer legally own it, even though you can continue to control and benefit from it. Inter vivos trusts have always been available as a tool for estate planning. However, because of the tax rules that apply to inter vivos trusts, they have not been widely used.
Those rules provided that a transfer of assets to an inter vivos trust (except a “spousal trust”) was, for tax purposes, a disposition of the assets at their fair market value, which could result in capital gains tax. As a result, inter vivos trusts have normally been created only in the following situations:
- to create an inter vivos “spousal trust”, where the spouse is entitled to all of the income, and is the only person who can receive any capital, of the trust during the spouse’s lifetime;
- to create an inter vivos trust with assets that do not trigger a capital gain (such as cash, unappreciated stocks or a principal residence)
- to create an inter vivos trust to acquire future growth shares of a corporation as part of an estate freeze transaction.
The proposed amendments to the Income Tax Act create two new inter vivos trusts, the Alter Ego (meaning “other self”) Trust and the Joint Spousal Trust. These trusts enjoy the same benefits of other inter vivos trusts, with the added advantage that transferring assets to these trusts will not trigger any liability for income tax.
To create an Alter Ego Trust, you must meet the following conditions:
- you must be over the age of 65
- you must be entitled to receive all of the income of the trust before your death
- no one else can receive the capital of the trust before your death.
The Joint Spousal Trust has the same requirements except that you and your spouse must be entitled to all of the income of the trust, and no one other than you and your spouse can receive any of the capital while either of you are still living.
If you transfer assets to one of these new trusts, you will no longer legally own them (the trust will), so they will not form part of your estate when you die. During your lifetime you can continue to control the assets as the trustee of the trust, or you can name other trustees to manage the assets for you. You can name beneficiaries who will receive the assets after your death. The trust can be changed or even revoked as long as you have the capacity to make those decisions.
The use of these trusts can be advantageous for many reasons:
1) Probate Avoidance
A trust can avoid probate and probate fees. Because the trust owns the assets, they are not part of your estate when you die. Probate, and the payment of probate taxes, applies only to assets that are part of your estate (click here for more information about avoiding probate fees).
2) Asset Protection
The Wills Variation Act allows your spouse or children to apply to the court to vary your Will if they have not been adequately provided for. Because assets in a trust are not part of your estate, the use of a trust can avoid these claims. This could be useful if you wish to treat your children differently, or if you are in a second marriage and wish to provide for your spouse while also preserving the assets for your children from a previous marriage.
For the same reasons, the use of a trust can potentially protect assets from claims by creditors.
3) Centralized Ownership and Management
While you will likely want to control the assets in the trust, you can name other trustees, such as family members or friends, to manage the assets for you. For example, the trust could provide that if you become incapable, your spouse or another trusted family member would act as trustee in your place. As a result, you will not require a power of attorney for the assets in the trust.
If your Will is probated, it will become a public document, along with the value of all of the assets that formed your estate. Certain people are entitled by law to receive a copy of your Will after your death. A trust is a private document and can be used to keep your affairs confidential.
To avoid probate and protect assets from claims, many people are giving assets away before they die or putting assets into joint tenancy. This can result in many unintended consequences, including taxes. The Alter Ego Trust and Joint Spousal Trust can help you avoid probate and claims against your estate without the problems that can arise by giving away your assets or putting them into joint tenancy.
So should everyone over age 65 create an Alter Ego or Joint Spousal Trust? Definitely not. Although they have many advantages, other factors must also be considered, including:
- the transfer of trust assets to other beneficiaries after your death may not qualify as a testamentary trust, so the ability to save taxes using testamentary trusts for income-splitting may not be available
- for tax purposes, charitable bequests from the trust will not be treated as favourably as charitable bequests under a Will
- transferring real estate into the trust may require payment of provincial Property Transfer Tax
- a trust costs more than a Will, and the preparation and filing of an annual tax return for the trust will be an extra cost
- a Will may still be required if any assets are not transferred to the trust or if assets are acquired after the trust was created
- it is more difficult to change a trust than a Will.
While these new trusts are not for everyone over 65, they have considerable potential as an estate-planning tool. For a personal review of your estate plan, including whether a trust might be right for you, call us to arrange a consultation (656-3280).
LOOKING AFTER YOUR LITTLE ONES – Appointing a Guardian
One of the most difficult decisions for parents is choosing a guardian for their children. Most of us do not like to think about our death, especially if we have young children who would be left behind.
Many parents don’t choose a guardian because they don’t want to think about the possibility of dying before their children are grown. Others put off the decision because they can’t agree on who the guardian should be. In doing so, they may be leaving open the possibility of costly custody battles and further trauma to their children.
In B.C., with some exceptions discussed below, a parent can appoint a guardian for children under 19 years in a will. For parents with young children, this is one of the most important reasons for making a will.
There are two types of guardians:
- the guardian of the person of the child – who has custody of the child and is responsible for the child’s health, education and upbringing
- the guardian of the estate of the child – who manages the assets of the child
Often the guardian of the person and of the estate is the same person. However, many parents appoint a separate trustee in their will (who is usually also the executor of the will) to manage and disburse the child’s share of the estate.
The trustee should be someone with common sense and sound judgment. Being a financial wizard is not required, since the trustee can hire a professional investment advisor if necessary. The guardian of the person of the child should be someone who shares your values and ideals.
Not every parent is able to appoint a guardian. In order to appoint a guardian upon death, a parent must have been the child’s guardian while the parent was living. The law about guardianship is explained in the following scenarios:
A mother and father are joint guardians for so long as they live together. On the death of one parent, the surviving parent becomes the sole guardian. On the death of the surviving parent, the guardian will be the person(s) appointed by the surviving parent.
Parents apart but married or previously married
If a mother and father are or were married to each other but are living separate and apart, they are joint guardians of the estate of the child, but only the parent with whom the child resides is guardian of the person of the child.
As a result, if the custodial parent dies first, the guardian of the person of the child will be the person appointed in the custodial parent’s will. The surviving parent will become the sole guardian of the estate of the child, but will not be the guardian of the person of the child unless appointed by the custodial parent.
In blended families, where children of different parents are living under the same roof, the death of one of the parents in the blended family may result in an unexpected, but forced, separation of the children if guardianship appointments were not updated.
If a mother and father are divorced, the parent granted custody in the divorce proceeding is the sole guardian, unless the court otherwise orders (generally the court will order joint guardianship).
Parents apart and never married
If a mother and father were never married and are living separate and apart, but previously lived together with the child, they are joint guardians of the estate of the child but the custodial parent is the sole guardian of the person of the child, as above.
Parents never together
If a mother and father never lived together with the child, and were not married during the child’s life or 10 months before the child’s birth, the mother is the sole guardian unless the court otherwise orders.
Of course, each of these scenarios is subject to what the court may order, based on the best interests of the child. In addition, in some cases, parents may make a written agreement providing that they are joint guardians or that one of them is the sole guardian.
If a child has no guardian, or the person appointed under a will is unable or refuses to act as guardian, the Public Guardian and Trustee is the guardian of the estate of the child, and the Director under the Child, Family and Community Service Act is the guardian of the person of the child, until a court otherwise orders. For this reason, it may be a good idea to appoint an alternate guardian in case your first choice is not able to act.
If you have been putting off the appointment of a guardian for your children, please use this information to get your affairs in order. We would be happy to provide further guidance.